Canada's Biggest Pensions Team Up, Committing $3.4 Billion to British Rail Link

In the same week that the Canadian government blocked the hostile takeover bid for Potash Corporation by the Anglo-Australian mining group BHP Billiton, two of Canada's largest pension funds have won a 30-year deal to operate a rail route linking the Channel Tunnel with central London.

(November 5, 2010) — Two of Canada’s biggest pension managers — Borealis, the infrastructure investment arm of the Ontario Municipal Employees Retirement System (OMERS), and the Ontario Teachers’ Pension Plan (OTPP) — are joining forces to pay $3.4 billion for the rights to control the high-speed rail link between London and the Channel Tunnel. The deal represents the first privatization of a coalition government struggling to slash the national deficit.

The Department of Transportation in Britain said OMERS and OTPP acquired a 30-year franchise to operate the 109-kilometre rail link, which the government will continue to control. “HS1 is a high-quality asset ideally suited to our investment criteria and we are extremely pleased that our bid was selected,” said Stephen Dowd, senior vice-president of OTTP’s Infrastructure Group, in a statement. “HS1 will provide stable inflation-protected returns from proven and long-standing patronage levels, along with upside potential as the European Union moves to liberalize international rail travel. Teachers’ has positive experience operating major assets in the UK and HS1 further diversifies our global infrastructure portfolio.” The line makes about 250 million pounds a year in access charges, 60% from domestic services, and has more than one-third of capacity unused, enough to permit more operators, Bloomberg reported.

“This acquisition supports OMERS long-term strategy to diversify internationally and we view the UK and Europe as primary markets in meeting this objective,” said Michael Rolland, President and Chief Executive Officer of Borealis Infrastructure. “HS1 operates in an attractive and stable regulatory environment with good long term visibility on inflation linked cash flows.”

At least two other groups had reportedly submitted offers. One was to have included Eurotunnel PLC and two of its shareholders, Infracapital and Goldman Sachs Group Inc, while another was said to include Morgan Stanley’s infrastructure fund, 3i Group PLC’s infrastructure fund and the Abu Dhabi Investment Authority.

The $96 billion OTPP is Canada’s largest single-profession pension plan, whose UK investments include lottery operator Camelot Group, Bristol International Airport, Birmingham Airport and Scotia Gas Networks. Borealis Infrastructure, a unit of OMERS Worldwide with net assets of $48 billion, has British investments that include stakes in Associated British Ports and Scotia Gas Networks.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href=''></a>; 646-308-2742